New Mexico tax deal takes cities and counties by surprise

A tax compromise deal that whizzed through in the final seconds of the 60-day legislative session has caught cities and counties around the state by surprise.

Included in the tax deal is the phase out of the "hold harmless" gross receipts tax distribution to local governments over a 15-year period. The deal also creates a new hold harmless local option gross receipts tax authority of up to three-eighths of 1 percent that local governments will be able to impose to make up the shortfall.

When the Legislature abolished the gross receipts tax on food and medical services about eight years ago, the state financially compensated local governments for the loss in gross receipts on those items.

Food and medical services in the state will continue to remain untaxed.

Although Gov. Susana Martinez has not signed the measure, she has indicated she will, local officials said.

Eddy County Manager Allen Sartin told the County Commission on Tuesday that a representative of the New Mexico Association of Counties contacted him Monday and said the tax deal was passed just seconds before midnight on Friday. The session closed at midnight.

Sartin said he has few details and is waiting to get more from the association, which monitored the legislative session.

City of Carlsbad Administrator Jon Tully said the phase-out of the gross receipts tax distribution is "literally troubling and unexpected.

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" He said the city estimates it will lose about $2.5 mil-lion a year.

Tully said when the state repealed the gross receipts tax levy on food and medicine, at that time, city leaders estimated the revenue loss of about $1.5 million a year. Tully said with Carlsbad and Eddy County experiencing an unprecedented boom in the oilfields, the revenue loss will be greater and will have a huge impact on the two local governments.

"Will the city have to increase our gross receipts tax to cover the loss? I expect it will. We really don't know the full impact of the bill until we see it in final form," Tully said. "The Municipal League had not seen it before it passed. From what I have been told this (the hold harmless GRT phase out) was literally thrown into the bill in the last 20 minutes of the session. The Municipal League did not have the opportunity to fully assess the bill."

The governor's office says the net fiscal impacts to the state's general fund are expected to be positive as it expects reduced spending on the hold harmless distribution will offset significant tax reform and the corporate income tax cut will gradually increase to almost $150 million per year.

Rep. Cathrynn Brown, R-Eddy, said she spoke with the governor immediately after the session ended and Martinez indicated that she was pleased with the compromise bill. Brown said she believes Martinez will sign it.

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